12_Implied_Terms - Contracts 01 Implied Terms PART XII...

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Contracts 01 – Implied Terms P ART XII I MPLIED T ERMS I I NTRODUCTION A The Role of Implied Terms Parties cannot possibly contemplate every contingency that may arise and alter the operation of the contract, so that gaps are inevitably left in the express contractual terms of an agreement. For this reason, the courts are prepared to imply terms into contracts. Several methods and justifications are applied to the implication of terms. B Methods of Implication There are three classes of implied terms. These terms may be implied by law or by fact: 1 Terms implied by law are said to be imposed on the parties regardless of their intention (on the basis of policy); there are two types of terms implied by law: a) Universal terms – implied by law into all contracts; and b) Generic terms - implied by law into particular classes of contract i The relevant test is ‘necessity’ ii The exact scope of each class is usually unspecified 2 Terms implied in fact are said to be based on the presumed intention of the parties (on the hypothesis that the parties would have included them if they had thought of them); specific terms are generally tailored to the particular contract under consideration a) The relevant test is the BP Refinery test II U NIVERSAL T ERMS A Duty of Cooperation 1 The law in Australia In Butt v McDonald , it was stated that [i]t is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his or her part to enable the other party to have the benefit of the contract. The duty to cooperate usually arises as a specific obligation that applies to the circumstances. Courts apply the universal duty to the facts of the case, generating a more precise obligation. Terms will only be implied to the extent of consistency with the express terms of the contract. Express provisions prevail over implied terms, except (arguably) in relation to certain duties, such as the duty to act in good faith under UNIDROIT provisions. © Jaani Riordan 2004 Page 1 of 22 http://www.jaani.net/
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Contracts 01 – Implied Terms In Australia, a duty to cooperate is implied into every contract ( Secured Income v St Martins ). Secured Income v St Martins: Facts SI sold a large office block to SM $170,000 remained owing after settlement, which was made on 26 January 1973 This was payable by 26 May 1973 The contract provided for the reduction of this sum by a formula if aggregate rents had not reached a specified figure by that time It also provided that leases of the premises after execution of the agreement (but before completion) should be approved by SM – approval was not to be capriciously or arbitrarily withheld The aggregate rents were far below the specified figure As a result, SI offered to lease so much of the vacant premises as would increase the aggregate rent to a level that the $170,000 would not be reduced SM rejected this offer and, as a result of applying the formula to the vacant offices, the
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12_Implied_Terms - Contracts 01 Implied Terms PART XII...

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